The regulation of factoring agreements will take a step forward when the new Civil Code comes into force from 15 March 2014.

There are currently no specific regulations dealing with factoring, although it is defined in the Banking Act. Under the new Civil Code, regulations will prescribe the character of the loan and the assignee’s right to reclaim the factoring fee and interest.

The new Civil Code will differ from the Banking Act definition by treating factoring only as a special loan agreement under which the factor (the assignee of a receivable under a contract) can request performance of the contract by the other party (the party owing the obligation to the assignor). If that party fails to discharge its obligation under the assigned contract, the assignor must pay back the factoring fees to the factor together with interest.

Any agreements not meeting these criteria will be deemed an atypical contract and not a factoring agreement, from a civil law perspective. However they may still be considered factoring agreements from a banking (public) law perspective, unless the definition of factoring in the Banking Act is changed. In fact, a few practical difficulties could arise if this is not done.

The new Civil Code also requires that details of the factoring and the debtor be recorded in the register of security interests.

Gross turnover from factoring in Hungary reached HUF 862 billion in 2012, according to data published by the Hungarian Factoring Association. This represents almost 10% of short-term loans taken out by SMEs from banks in the last year. This makes it a significant contributor to Hungary’s economy and means that, if the economic crisis persists, it may continue to be an attractive alternative to classic short-term financing arrangements offered by banks.

The effect of the economic crisis on the factoring market is reflected in the growth from 64% in 2011 to 69% in 2012 in the proportion of factoring deals subject to recourse (ie the imposition of an obligation on the company selling receivables to repurchase them). According to the Hungarian Factoring Association, the banks have also changed their attitude and begun to see it as an alternative to classic lending (e.g. overdraft facility), although the banks are struggling to find suitable clients to whom they could sell factoring as an arm’s length financial product.

Law: Act V of 2013 on the civil code (New Civil Code); Act CXII of 1996 on credit institutions and financial enterprises (Banking Act)